Option in which an average value is calculated from the price of the underlying instrument within a specified period. In the case of the average rate option, this is used to determine the value of the underlying, and in the case of the average strike option, to calculate the strike price. – In the case of the average rate option, the averaging of the price of the underlying may result in the value of the option on the expiration date being substantially lower for the purchaser and correspondingly substantially higher for the writer than the difference between the strike price and the current price on the expiration date alone. – In the case of the average-strike option, the strike price of a call option, calculated as the average value, may be significantly higher than the price originally set. In the case of a put option, this may result in a correspondingly lower strike price than that originally set. – See Execution self-executing, European Master Agreement.
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